Hong Kong stocks fell sharply in early trading on Tuesday, falling more than 10 per cent at one point, hitting as low as HK $14.40, and pulling back 13 per cent in three trading days since Friday's fortune report.

1. Fierce fighting between foreign investment banks and mainland securities firms

After SMIC's Q4 earnings report, foreign investment banks such as UBS, Bank of America Merrill Lynch and Daiwa downgraded Semiconductor Manufacturing International Corporation: UBS downgraded Semiconductor Manufacturing International Corporation to "outperform the big city", and the target price rose to HK $13; Grand Motors downgraded SMIC to "underweight" and the target price rose to HK $14.50; Daiwa downgraded its rating from "inferior to the market" to "sell", raising its target price by 8.7% to HK $10 from HK $9.2.

There are many reasons for foreign investors to be bearish, among which Daiwa is particularly interesting.The bank said the company's better-than-expected fourth-quarter results were mainly due to increased subsidies, reduced research and development and higher non-operating profits. Without government subsidies, the company's net interest rate is unlikely to rise rapidly, not enough to make up for the increased costs caused by high capital expenditure, arguing that the recent rebound in share prices is fundamentally unreasonable.

Investors who are slightly familiar with the history of semiconductor development should know that the first biggest customer of the US semiconductor industry is the military, and South Korea's semiconductor industry is very developed, which is also the result of South Korea's national development.The semiconductor industry is a high-capital + high-tech industry with double high barriers. Without the support of the government, the probability of emerging enterprises to break through is almost zero.

Unlike foreign investment banks, which are bearish, mainland securities firms have given more positive ratings:CICC raised its target price to HK $18 to maintain an "better than market" rating; Citic raised its target price to HK $20.22; BoCom International raised its target price to HK $15 to maintain a "neutral" rating. The bank believes that the company's share price has rebounded by more than 50% in the past three months. I think we should wait for a better buying opportunity.

And Beishui has been "buying".

2. Trump administration plans to strengthen export control to Huawei

The Trump administration plans to tighten export controls on Huawei, limiting the content of parts made in the United States to 10%, blocking Taiwan Semiconductor Manufacturing Co Ltd from supplying Huawei, the Wall Street Journal reported on February 17. If the United States passes this new measure, it will have an impact on Huawei and its suppliers. Whether the rumor is true or not, for the time being, Huawei supplier Sailings got fed up and announced the start of layoffs.

The author believes that if Taiwan Semiconductor Manufacturing Co Ltd's supply to Huawei is blocked, it may not be an opportunity for SMIC to grow. In the context of overseas restrictions on semiconductor manufacturing, the lack of semiconductor manufacturing in the mainland will shake the foundation of the science and technology industry, and SMIC's strategic position is even more important.

3 、Treat the rise and fall rationally

Just as the author inWhat SMIC Q4 said in the financial review.From the perspective of the development of the companyMedium coreMass production 14nm, just advanced into an "intermediate player", SMIC is not that good and not so bad, just an average student.SMIC's next possible goal is to catch up with United Microelectronics Corp and GE Core, the second echelon of international wafer factories, in terms of revenue. Having achieved this step, SMIC has a market capitalization of more than 100 billion yuan, and there is still a great hope to recover the IPO offering price.

From the point of view of the rise and fall of the stock price, no stock can only rise or fall, even the hot Tesla, Inc. will have a 17% pullback after rising sharply in a row.SMIC has risen more than 50% in less than half a year from Q3 financial report to now, up to nearly 80% at most, which is not a small increase in the short term. The author believes that no matter how SMIC "touts" the essence is still high-end manufacturing, it is inseparable from the rigid constraints of physics, it is impossible to grow into a towering tree all of a sudden, and the stock price cannot soar continuously. It would be nice to replicate the "steady rise" trend of Taiwan Semiconductor Manufacturing Co Ltd's stock price.

The author believes that although SMIC's share price has fallen sharply in the short term, the basic market has not changed, the long-term optimistic logic has not changed, and there is no need to panic excessively.